Monday was our Members-Only Conference Call for both India and the US (see JC’s video here) and the most overwhelming theme was that Equities are not trending, so what does that mean for us as market participants?
Here’s a chart of the Nifty 500, the broadest measure of the Indian stock market. With a flat 200-day moving average and momentum switching quickly between overbought and oversold conditions, it doesn’t take any expertise to recognize that there is a lack of trend.
What it does take is experience to acknowledge and accept that this is not the type of environment we want to be swinging for the fences in.
Click on chart to enlarge view.
As Technicians we like trending markets. We’re interesting in capturing the meat of a long-term move, but when there’s no direction we have to change up our playbook a bit.
So what are our options?
First is Cash. We often forget that cash is a position and that doing nothing may very well be the best course of action in a challenging environment.
If you can’t be in cash and have a mandate to be invested or trading actively, then managing risk by using smaller position sizes and quickly taking some profits to build in a cushion when a position starts working (“feeding the ducks”) makes a lot of sense.
Whipsaws and reversals are common in markets that aren’t trending, so it’s imperative that we protect our capital and keep it available to put to work when more favorable conditions present themselves.
In the meantime, while the market remains rangebound with well-defined support and resistance levels we can be buying the strongest areas of the market toward the bottom of the range and shorting the weakest at the top. If you prefer to play the indexes themselves with that strategy you can, keeping the risk management note above in mind.
Also check out the post we just did outlining the changes to the Nifty Indexes that occurred during the March 31 reconstitution.
Thanks for reading and let us know if you have any questions!